 |
| With the threat of Bitcoin exchange hacks, like in the case of Mt. Gox, Bitcoin security is a major concern (8). |
Whether putting money in stocks or keeping it in a bank, there is one thing people want to know: will my money be safe? Thanks to federal regulators like the FDIC and SEC, the answer to that question is generally yes. However, security is a big question for a cryptocurrency that is completely unregulated. To amplify that, the fact that Bitcoin has no physical backing brings even more fear for traditionalists. Is using Bitcoin actually safe?
Because Bitcoin is open source, it is constantly checked for issues and no one can hide transactions. Also, due to the competition in mining and the immense computing power associated with it (see Bitcoin Mining: Free Money?), transactions are constantly being processed and checked by a multitude of sources. The history of all transactions is public knowledge and cannot be altered by anyone (2). Thus, the Bitcoin system and the currency itself are fairly secure (1). The blockchain “appears somewhat immune to hacking risks” (3).
Because Bitcoin is open source, it is constantly checked for issues and no one can hide transactions. Also, due to the competition in mining and the immense computing power associated with it (see Bitcoin Mining: Free Money?), transactions are constantly being processed and checked by a multitude of sources. The history of all transactions is public knowledge and cannot be altered by anyone (2). Thus, the Bitcoin system and the currency itself are fairly secure (1). The blockchain “appears somewhat immune to hacking risks” (3).
The exception to this immunity is what is known as the 51% attack. This could occur if one party controlled a majority of the Bitcoin network. Because of the development of mining equipment, the creation of industrial mines, and the rise in cloud mining, entities handling large portions of the network is becoming increasingly more common. In a 51% attack, the controlling party would have the ability to double spend Bitcoins and obstruct other transactions (4). The party could create their own blockchain, and--since they have more computing leverage than any other--push it through, no matter whether the blockchain is valid or fair (5). If an attack like this occurred, the integrity of the currency would be compromised and the value and credibility would plummet. A crash in the value of Bitcoin would also affect the Bitcoin the attacker owns, which deters this type of attack (3). Ideally, the mining and Bitcoin reward system should entice enough competition to prevent any party from gaining so much control.
So, for the most part, Bitcoin currency itself is safe. However, the biggest threat to Bitcoin security comes from sources independent of the Bitcoin blockchain. Purchasing and selling Bitcoin usually occurs through Bitcoin exchanges. There have been numerous hacks of Bitcoin exchanges. Most notably is the attack of the exchange Mt. Gox (a name originating from a Magic The Gathering Online eXchange) in 2014 in which 850,000 Bitcoins--worth $590 million at the time and worth about $6 billion today--were stolen (1). This left many people with both losses in money and in faith in Bitcoin. Each Bitcoin user has their own private address or key, and hackers stole those keys from Mt. Gox. And with those keys, hackers could take any Bitcoin owned by that key (7). People gave their money to Mt. Gox, but in reality Mt. Gox was not secure. There have been dozens of hacks to similar exchanges. Although exchanges act like banks do for traditional currency, they do not provide the safety and guarantee that a bank does.
The lack of centralization in Bitcoin has its pitfalls. There is no safety net if an unregulated Bitcoin exchange is hacked. There are, of course, ways to try to protect one’s Bitcoin like setting strong passwords, having two-factor authentication, and spreading Bitcoin across multiple exchanges, but there is only so much an individual can do (6). From a computing side, for Bitcoin to continue to thrive and establish itself as a legitimate currency, developing a software and system that prevents hacks and gives users trust in putting their money in exchanges is essential; however, this is difficult to do with no central authority. This is a huge project coding wise and there is no one to assign this project. This rests in the hands of the Bitcoin community.
Is using Bitcoin actually safe? The currency itself maintains its secure position, but the application of this currency through exchanges is always at risk to hacking and something a user must be wary of before using the currency.
References:
(3) https://www.credit-suisse.com/corporate/en/articles/news-and-expertise/is-bitcoin-safe-201701.html
(8) https://news.bitcoin.com/wp-content/uploads/2017/06/Chainalysis-Knows-the-Location-of-the-1.7-Billion-Dollar-Missing-Mt-Gox-Bitcoins.png
No comments:
Post a Comment